Amazon faced downtime in India and its shares fell by 5.38% in February 2019 due to rule changes
Amazon will be investing INR 3,400 Cr in Amazon Seller Services, INR 900 Cr in Amazon Pay India and INR 172.50 Cr in Amazon Retail this year
India is estimated to account for 13% of Amazon’s international sales by 2023
As Amazon founder and CEO Jeff Bezos said Amazon is looking to become ‘India ki apni dukaan’ — with services ranging from selling fashion, electronics, home essentials, and now even electric scooters— it is beyond debate that the company’s ecommerce business is one of the most prominent digital businesses in India.
Further, with India-focussed video content on Prime Videos, the launch of grocery delivery service Amazon Fresh, and the much-talked-about food delivery foray, Amazon is certainly among the most popular brands in India. But now the question remains: Is the global ecommerce giant making money in the Indian market?
Following the Indian government’s changes to the foreign direct investment (FDI) rules in ecommerce, Amazon was reported to have faced a slump in sales in India for Q1 2019.
‘A Few Days Of Downtime’
In February 2019, after the FDI in ecommerce rules were implemented, Amazon’s shares fell by 5.38% to $1,626.23, losing $45.22 Bn in market capitalisation. At present (Oct 2019), Amazon is trading at $1,787.48 per share.
Brian T. Olsavsky, senior vice president and chief financial officer, Amazon said in March 2019, “We did make some changes to our structure to stay in compliance with all regulations. There were a few days of downtime for some of our selection. But for the full quarter, the impact was minimal and we’re in compliance and we’re very happy with the progress of the business in India,” he said.
At that time, Olsavsky also mentioned that the number of global prime subscribers doubled in the last 18 months and the company’s investment in its global selling program is said to have helped the Indian sellers to reach a global user base.
In Q2 of FY 2019, Amazon has reported a 37% year-on-year growth, with the company’s revenue reaching $33 Bn from the earlier $24 Bn. Further, the company reported net sales of $63.4 Bn, a hike of 20% as compared to the second quarter of 2018.
As of April 2018, Amazon India had 67 fulfilment centres across 13 Indian states. Also, Amazon Prime was the most-viewed over-the-top (OTT) video streaming platform in India for the period between February 12 and March 3, this year, as per a survey done by Velocity MR — a market research and analysis company.
In August 2018, Amazon has invested an additional $385.8 Mn in its Indian business, taking its total investment in India to nearly $4 Bn in the last six years of its operations.
According to an RBC Capital Market report, India is expected to account for 13% of Amazon’s international sales and 4% of overall sales by 2023. Sales in India are expected to generate a total of $32 Bn by 2023, which would give Amazon India a market share of 35% in Indian ecommerce.
Earlier this year, Amazon also forayed into the offline-to-online commerce space with the acquisition of a 49% stake in Kishore Biyani’s Future Coupons, the promoter entity of India’s second-largest retail chain Future Retail.
Another notable development this year is the launch of Amazon’s grocery delivery vertical, Amazon Fresh in India, under Prime Now. Amazon Fresh was first launched in Seattle in 2007 and has been the flagship food and grocery delivery offering of Amazon globally. Further, the company is also eyeing a foray in India’s food delivery market.
Amazon Faces Regulatory Hurdles In India
Predatory pricing or deep discounting has been an ongoing point of discussion between the Indian government and ecommerce companies. Trade associations and online sellers body have also time and again criticised ecommerce platforms such as Amazon and Flipkart of selling products at near-cost prices to boost sales volumes.
To save the interests of small retailers and create a level playing field, the DPIIT had introduced the draft ecommerce policy in late 2018 and also implemented the new foreign direct investment (FDI) norms in ecommerce to curb deep discounting. The new norms in ecommerce restricted companies from directly or indirectly impacting the price of products.
The implementation of FDI rules had also been reported to have impacted the trade relations between the US and India government. Earlier this month, at the India Economic Summit in Delhi, US secretary of commerce Wilbur Ross said that India needs to bring in more balance in its ecommerce policy and consider the timing of the changes in regulations.
Ross also pointed out that Amazon is spending one-third of what it spent a year before in capital expenditure. It could have probably spent more in India if it didn’t feel that there is diminishing growth, Ross added.
Responding to Ross, India’s commerce minister Piyush Goyal had then said that because of India’s market conditions, the government has to be very clear on creating ecommerce regulations to protect smaller retailers. India has 120 Mn – 130 Mn citizens depending on small retail, from about 50Mn – 60 Mn small retail shops. Effectively, small retail impacts the livelihoods of about half the Indian population when one considers the families affected, he added.
Goyal also noted that foreign ecommerce platforms are expected to be an agnostic platform. He emphasised that it is a platform to trade and offer opportunities to consumers and sellers and should not indulge in predatory pricing or use the power of large capital to buy users through discounts.
Despite claims that Amazon is slowing down investment in India, the company infused massive capital into the India business in late October. After filling its annual performance report for the financial year ending in March 2019, Amazon has now decided to infuse $630 Mn (INR 4,472.50 Cr) into three of its Indian businesses — Amazon Pay, Amazon Retail and Amazon Sellers Service.
According to business intelligence platform Paper.vc, Amazon will be investing INR 3,400 Cr in Amazon Seller Services, INR 900 Cr in Amazon Pay India and INR 172.50 Cr in Amazon Retail to push them more aggressively in the Indian market.
Amazon Seller Services, which runs the marketplace, got the largest chunk to spend on more discounts, promotions and marketing. Whereas Amazon Pay will continue the cashback and focus on adding more merchants.
Is Amazon Making A Profit Or Loss In India?
Despite the huge growth for ecommerce in the Indian market, neither Flipkart nor Amazon are profitable.
As per documents sourced by business intelligence platform Tofler, Amazon Seller Services narrowed its loss to INR 5,685 Cr for the financial year ending March 31, 2019. The latest loss is a 9.5 lower than the last financial year when Amazon recorded losses of INR 6,287.9 Cr. The US-based ecommerce giant’s losses in India stood at over INR 7000 Cr for FY 18-19.
Amazon India’s B2B arm, Amazon Wholesale India, also suffered a blow in addition to widening its losses; it has reported a downfall in revenue as well. While the revenue saw an 8% drop from last financial year and stood at INR 11,250 Cr, the loss widened to around INR 141 Cr in FY18-19.
Launched in 2017, Amazon Pay India which is the digital payments arm of the ecommerce company registered manifold increase in its losses. The payments service has widened its losses to INR 1,160.8 Cr in FY19 from INR 334.20 Cr last year.
Just goes to show that despite being one of the biggest brands in the world and with some of the brightest and most expensive engineers and talent in the world, the Indian market has not delivered profits for Amazon.